Engineering Economics

J. K. Yates

• Publisher: CRC Press
• Year: 2016
• ISBN:
  9781498750882
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Civil Engineering
• Index: Technology & Engineering

This book provides a straightforward approach to explaining engineering economics that is appropriate for members of all of the major engineering disciplines. It includes real world engineering economic analysis examples, and provides the basic knowledge required for engineers to be able to perform engineering economic analyses for different potential alternative equipment, products, services, and projects in both the public and private sectors. It focuses on mastering the basic engineering economics formulas and their use on different types of engineering and construction projects, and includes numerous example problems and real world case studies.

1	Introduction

For it is just this striving forward that brings us to the fruits which are always falling into our hands and which are the unfailing sign that we are on the right road and that we are ever and ever drawing nearer to our journey’s end. But that journeys’ end will never be reached, because it is always the still far thing that glimmers in the distance and is unattainable. It is not the possession of the truth, but the success which attends the seeking after it, that enriches the seeker and brings happiness to him.

Max Plank

German Physicist (Brown, 2015, p. 211)

1.1 INTRODUCTION TO ENGINEERING ECONOMICS ANALYSIS

This book introduces engineers to the formulas and techniques for performing engineering economic analysis. In addition to creating designs, engineers also evaluate the economic viability of their designs. If there are multiple design alternatives, each alternative is analyzed to determine which alternative is the most cost-effective, economical, and profitable design. For private projects, engineers are required to design the most profitable project, and government projects need to be the most beneficial project to the public. Members of society rely on engineers to design structurally safe projects and products, but they also have to meet the requirements of clients or the public and generate reasonable profits or benefits. Engineering economic analysis techniques help engineers to evaluate each project as part of the process of providing economically feasible designs to their clients and the public.

In order for engineers to develop the knowledge necessary for economically evaluating projects, this book introduces the fundamentals of engineering economics using a straightforward, easy to understand approach appropriate for members of all of the engineering disciplines. Techniques are presented throughout this book for analyzing the economic viability of equipment, materials, products, projects, and services, all of which will be referred to as projects throughout this book. The economic viability of projects is determined by analyzing the costs and tangible and intangible benefits using engineering economic formulas to calculate the rate of return on an investment or determining whether accounting for the time value of money the benefits or profits are greater than the costs.

Time value of money considers that a sum of money could be invested at a particular interest rate and the value of the sum invested would increase over time due to the accumulation of interest. Clients are not willing to invest in a project unless the return on the investment will be greater than what the client could earn if he or she invested the funds in some type of interest-bearing account. Therefore, engineers are responsible for demonstrating to clients that the designs being proposed will result in a client being able to realize a higher rate of return on the investment than the rate of return he or she would be able to earn by investing the funds instead of creating a project.

The techniques and formulas presented in this book provide engineers with the fundamental knowledge required to economically analyze designs, projects, or products and present the results of the analysis to clients. This book also includes examples of how engineering economic analysis techniques are integrated into other aspects of society to determine the economic viability of proposed purchases and investments such as the following:

• Calculating the remaining balance and balloon payments on loans.

• Calculating the amount of future social security income.

• Comparing different alternatives when trying to decide which alternative to select.

• Consequences of financing a university education using student loans.

• Determining the amount of interest paid when borrowing money to finance items such as computers, equipment, furniture, machinery, property, vehicles, and other assets.

• How starting a retirement account when someone is in his or her 20s or 30s could greatly increase the funds available at retirement.

• Purchasing a home using a home mortgage.

• Using engineering economic analysis techniques to help make decisions on whether to invest funds now or wait until some future time to investment the funds.

The engineering economic analysis techniques introduced in this book include:

• Present worth

• Future worth

• Annuities—uniform annual series

• Gradients—arithmetic and geometric

• Capitalized cost evaluations

• Rate of return

• Incremental rate of return

• Replacement analysis

• Breakeven comparisons

• Benefit/cost ratios

• Deprecation

• After-tax rate of return

1.1.1 ORGANIZATION OF THIS BOOK

This book includes 14 chapters, each of which covers one specific area of the fundamentals of engineering economics. Each chapter contains definitions, explanations, formulas, example problems, case studies, and end-of-chapter problems. Every chapter builds on the material presented in previous chapters; therefore, each chapter should be read and studied consecutively for increased understanding of the material being presented in each chapter.

The first part of Chapter 1 provides an introduction to the topic of engineering economics and how money is used in commerce. The second part discusses improving the economics of projects and managing and tracking costs. Chapter 2 provides definitions for engineering economic terms such as interest and time value of money. This chapter also explains how to construct cash flow diagrams, which are an integral part of being able to develop and solve engineering economic problems.

Chapter 3 addresses equivalence and its relationship to engineering economic analysis and the time value of money. This chapter introduces formulas for calculating future worth and the present worth of future sums. It also explains the procedures for solving for rates ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgments
• Author
• Chapter 1 Introduction
• Chapter 2 Time Value of Money, Interest, and Cash Flow Diagrams
• Chapter 3 Present Worth, Future Worth, and Unknown Interest Rates
• Chapter 4 Annuities: Uniform Series
• Chapter 5 Arithmetic and Geometric Gradients
• Chapter 6 Multiple Factors in Engineering Economic Problems
• Chapter 7 Present Worth Capitalized Cost Analysis: Present Worth Method of Comparing Alternatives
• Chapter 8 Equivalent Uniform Annual Worth Comparison Method
• Chapter 9 Rate of Return Method for Comparing Alternatives
• Chapter 10 Replacement Analysis
• Chapter 11 Breakeven Analysis Comparisons
• Chapter 12 Benefit/Cost Ratio Economic Evaluations
• Chapter 13 Depreciation
• Chapter 14 Taxes and After-Tax Economic Analysis
• Appendix A: Basic Engineering Economic Equations and Cash Flow Diagrams
• Appendix B: Interest Factor Tables
• Appendix C: Using Spreadsheets to Solve Engineering Economic Problems
• Appendix D: Derivations of Engineering Economic Equations
• Appendix E: Summary of Engineering Economic Equations
• Index